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The tax multiplier is negative because an increase in taxes________disposable income, which...

Question:

The tax multiplier is negative because an increase in taxes ------- disposable income, which then -------- consumption and GDP.

a) decreases;decreases

b) increases;increases

c) increases:decreases

d) decreases;increases

The multiplier for government spending can be calculated using which formula?

a) 1/(1-MPC)

b) -MPC/(1-MPC,

c) 1/MPC

d) (1-MPC)/MPC

Spending and Tax Multiplier:

In the Simple Keynesian Cross models, a given change in exogenous government spending and taxes have a more than proportionately impact on equilibrium income. These effects are captured by the fiscal multiplier and the tax multiplier. Both of them depends on the consumers's marginal propensity to consume.

Answer and Explanation:

Question 1

The answer is a).

All else the same, an increase in tax decreases disposable income, because disposable income is equal to income minus...

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Learn more about this topic:

The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples

from Economics 102: Macroeconomics

Chapter 5 / Lesson 9
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